Financial Regulatory Forum

By Keith Mullin, Editor at Large, International Financing Review

– the views expressed are his own –

LONDON, Nov 12 (Reuters) The popular quote about focusing on the journey rather than the destination could well have been written about current moves to create the next generation of bank capital instruments and determine the place of hybrid debt in bank capital structures.

Stakeholders – politicians, regulators, supervisors, issuers, intermediaries and investors – have spent an inordinate amount of time trying to come up with a formula that will offer affordable hybrid capital to banks that meets lawmakers’ demands for a robust safety net (i.e. one that absolves taxpayers of responsibility) and at the same time hits investors’ return and risk metrics. Yet for all of the progress made so far, we are nowhere near a conclusion on rules and processes that will facilitate any of the above. (more…)

By Jane Merriman

LONDON, Oct 18 (Reuters) – Financial regulators favour contingent capital — bonds that convert to equity — as a way to strengthen large banks, but they face a tough job convincing investors to buy these new-fangled instruments in bulk.

A Reuters survey of major corporate bond investors shows that some would be willing to buy the bonds under certain conditions, but they have a lot of questions they want answered.

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By Jane Merriman

LONDON, Oct 4 (Reuters) – Contingent capital got a boost on Monday as Swiss regulators said these bonds, which convert to equity when banks are in trouble, could help bolster the capital base of Credit Suisse and UBS.

The Swiss initiative marks a step forward for the asset class, which has failed to find a big fan base among investors since UK bank Lloyds and Dutch-based Rabobank issued contingent-style bonds in November 2009 and March this year.

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By Jane Merriman

LONDON, Aug 27 (Reuters) – Plans to make hybrid bond investors share the pain when banks run into trouble could polarise the financial sector into big firms that can afford to pay up for capital and smaller players that cannot.

Financial regulators want to ensure that taxpayers are not the only ones on the hook when banks fail by proposing that bonds that count towards a bank’s capital should be written down or converted to equity if it is close to collapse.

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By Jane Merriman

LONDON, Aug 6 (Reuters) – Contingent capital, a breed of hybrid bond that could help capitalise banks in crisis, will struggle to grow into a mainstream asset class if rating agencies persist in refusing to rate it.

Contingent capital came into the spotlight nine months ago when Lloyds, converting existing hybrid debt, raised over 10 billion pounds as it raced to shore up its balance sheet.

The new form of hybrid bonds convert into equity capital when a bank hits trouble, topping up capital if it falls below a certain level, an attractive option for issuers especially as equity capital is expensive and scarce.

PHILADELPHIA, March 3 (Reuters) – Boston Federal Reserve Bank President Eric Rosengren said on Wednesday that he “strongly endorses” the idea of requiring banks to hold debt that converts into equity during times of duress.

“Contingent capital is an important part of the solution,” Rosengren told a Global Interdependence Center conference in Philadelphia in response to a question from the audience.

Answering a separate question, Rosengren said it was important that countries coordinate their policies on how to deal with firms seen as too big or interconnected to fail.

   LONDON, Nov 16 (Reuters) – Contingent capital could provide a useful form of “catastrophe insurance” for the banking sector if adopted widely, Bank of England Deputy Governor Paul Tucker said on Monday.
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